UNION

Equity Market: Outlook and Strategy

Debt Market: Outlook and Strategy

1UNION BUDGET, 2015 - 2016

KEYHIGHLIGHTS

Though the Union Budget is essentially a Statement of Account of public finances, it hashistorically become a significant opportunity to indicate the direction and the pace ofIndias economic policy. At a time when the International Monetary Fund (IMF) hasdowngraded its earlier forecast of global economic growth by 0.3%, and the World TradeOrganization has revised its forecast of world trade growth from 5.3% to 4%, theforecasts for India have either been upgraded, or have remained the same, without anydowngrades.With this in the background, we present the key highlights of Union Budget 2015-16.

Reining in subsidies to lower expenditures going forward; however, payment of subsidy

Direct Taxes Limit of deduction of health insurance premium increased from Rs 15,000 to Rs25,000; for senior citizens, limit increased from Rs 20,000 to Rs 30,000 Limit on deduction on account of contribution to a pension fund and the new pensionscheme increased from Rs 1,00,000 (One Lakh) to Rs 1,50,000 (One Lakh FiftyThousand). Additional deduction of Rs 50,000 for contribution to the new pension scheme (NPS)u/s 80CCD. Transport allowance exemption increased from Rs. 800 p.m. to Rs. 1,600 p.m. Payment to the beneficiaries including interest payment on deposit in SukanyaSamriddhi Scheme (SSS) to be fully exempt. Wealth-tax replaced with additional surcharge of 2 per cent on super rich with ataxable income of over Rs 1 crore annually Donation made to National Fund for Control of Drug Abuse (NFCDA) to be eligiblefor 100% deduction u/s 80G of Income-tax Act. Proposal to reduce corporate tax from 30% to 25% over the next four years, startingfrom next financial year. General Anti Avoidance Rule (GAAR) to be deferred by two years. GAAR to apply toinvestments made on or after 01.04.2017, when implemented. Positive. The increase in the limit of deduction of health premium, increasedtransport allowance exemption, the additional deduction allowed for contribution tothe NPS, the payments made under the SSS being exempted and the donationsmade to NFCDA to be eligible for 100% exemption are all positives forinvestors/individuals/savers. The benefits will accrue on account of tax saved as wellas help create a corpus for the future.3UNION BUDGET, 2015 - 2016

KEYHIGHLIGHTS

Miscellaneous

The finance minister has proposed to allow tax pass-through for alternate investmentfunds.

Rationalisation of capital gains regime for the sponsors exiting at the time of listing ofthe units of REITs and InvITs. The rental income arising from real estate assetsdirectly held by the REIT is also proposed to be allowed to pass through and to betaxed in the hands of the unit holders of the REIT.The distinction between foreign portfolio investments and foreign direct investmentshas been done away with and replaced with composite caps.The finance minister has allowed foreign investments in Alternate Investment Funds

Forward Markets Commission to be merged with SEBI to strengthen regulation of

commodity forward markets and reduce wild speculation.

The government will introduce Gold Monetization Scheme, Sovereign Gold Bondsand gold coins with Ashok Chakra to cut demand for gold coins from overseas.

Generation of black money and its concealment to be dealt with effectively andforcefully.Bill for a comprehensive new law to deal with black money parked abroad to beintroduced in the current session.Benami Transactions (Prohibition) Bill to curb domestic black money to beintroduced in the current session of Parliament.

4UNION BUDGET, 2015 - 2016

MARKETMOVEMENT

Equity Market

Markets were very volatile throughout the trading day, but ended in green towardsthe end of the trading session on the Budget Day.

Markets opened with positive sentiments and Sensex opened 191 points up from itsprevious close. Sensex was trading up by almost 400 points higher from its previousclose in the early trade before the announcement of the Union budget.

However, markets see sawed throughout the day as the Finance Minister went aboutpresenting the Union Budget.

At the end, the Sensex closed at 29,361 levels with gains of 141 points or 0.5%.

Among the sector indices consumer durables lost more than 4% while Power lostalmost 1.5%. Realty, Capital Goods and Metal Indices were down by 0.9%, 0.26%and 0.22% respectively. Banking sector index was up by more than 3%,whileHealthcare and Auto went up by 2.03% and 1.08% respectively.

Among Sensex stocks, Axis Bank (8.15%), Sun Pharma (3.62%),Tata Motors(3.15%) & ICICI Bank (3.15%) were the top gainers while ITC (-8.27%), BHEL (3.21%) and NTPC (-1.64%) were among the major losers.

Jump in capital expenditure growth a big positive though Budget lacks serious effort inrationalization of food subsidyLower Assistance to State Plans pursuant to increase in devolution of taxes to States

Positive for Private banks and NBFCs

Forward Markets Commission to be merged with SEBI. This

will pave the way for higher liquidity and market depththrough introduction of new products (options/ indices) andCommodityPositive: Commodity Exchangesinstitutional participation in commodity exchanges in theExchangeslong termCommodity derivatives included in Securities ContractRegulation Act

Source: Axis Capital

11UNION BUDGET, 2015 - 2016

SECTORUPDATES

Sector

Capitalgoods

FMCG &Retail

Key budget measures

O utlays up by 50% : Bulk of the increase in roads (up195%) and railways (up 53%)Push on metro rail projects and smart cities: 7 newmetro projects to be awarded in FY165 new UMPPs announced to be awarded with allclearancesEased infra financing through formation of a NationalInfrastructure Fund and Infra investment trusts. NIF has apotential of infra lending of USD 30 bn through initialequity commitment of USD 3 bnResolution of contractual disputes: Setting up aregulator for resolution of contractual disputes for publicsector projects

(1) Additional investment allowance at 15% and (2)

additional depreciation at 15% to new manufacturing unitsset up from 1st Apr 2015 to 31st Mar 2020 in notifiedareas of Andhra Pradesh (AP) and TelanganaPharmaceuticals Companies having capex plans largely in AP andPositive for Pharma cosTelangana like Aurobindo (capex of Rs 7 bn in FY15F),Divis (Rs 6 bn) and Dr Reddys (Rs 10 bn) would gaingiven higher allowance and lowerdepreciation

Source: Axis Capital

13UNION BUDGET, 2015 - 2016

SECTORUPDATES

Sector

Key budget measures

Impact

Power

Clean Energy Cess on coal increased to Rs 200/ ton from

Rs 100/ ton

Negative for companies selling power on

merchant basis.

Provided exemption on long-term capital gains for

sponsors and tax pass through status to rental income atREIT levelAllocation for rural and urban housing increased incontinuation to the Govts Housing for all initiative (60mn units to be built by 2022)

To improve liquidity for the sector

Realty

Positive for developers with strong annuity

portfolio.

Increase in service tax (ST) to14% from 12.36%. ST is a

pass through and has no material impact on minutes(except for full talk time plans where operators absorb thesame)Neutral for Telecom cosTelecom Phased reduction of corporate tax to 25%Budget receipts pegged at ~ Rs 429 bn in FY16 (Rs 432 bnin FY15E). Budgetary receipts in line. ~ Rs 230 bn will befrom annual regulatory levies and balance from additional15 MHz of 2100 spectrum band

Source: Axis Capital

14UNION BUDGET, 2015 - 2016

MUTUALFUNDS

BUDGET PROPOSALS IMPACTING MUTUAL FUND INDUSTRY

o

Surcharge on income distributed by mutual funds increased from 10% to

12%. This will result in reduced income in the hands of the investor. Reviseddividend distribution tax will now be as follows:

Individual: from 28.325% to 28.840%

Others: from 33.990% to 34.608%

Tax neutrality is provided on transfer of units of a scheme of a Mutual

Fund under the process of consolidation of schemes of Mutual Funds as perSEBI Regulations, 1996.

Unit holders will now have tax neutrality upon consolidation or mergerof mutual fund schemes provided that the consolidation is of two ormore schemes of an equity oriented fund or two or more schemes of afund other than equity oriented fund.

Service Tax exemptions are being withdrawn for services

provided by a mutual fund agent to a mutual fund or asset

management company and

services provided by a distributor to a mutual fund or AMC.

15UNION BUDGET, 2015 - 2016

EQUITYMARKETOUTLOOKAND STRATERGY

The Union Budget 2015-16 was presented in the backdrop of high expectations froma market which had pinned high hopes on the BJP led NDA government which hadthe strongest electoral mandate in the last three decades.

The Budget puts forward the pro-growth focus of the government, while at the sametime maintaining fiscal credibility in the medium term.

The Budget is a step in the right direction with a push towards infrastructure, steps toease doing of business, encourage financial savings and rationalise subsidies.

The Indian economy is poised to grow at a healthy rate when most of the largereconomies are facing downgrades in their GDP growth.

Indias macroeconomic fundamentals have improved dramatically for the better.

Amidst a global slowdown in economic growth, India continues to be an attractive

investment destination.

Equity market valuations are also reasonable when compared to their long termPrice to Earnings (P/E) averages

We recommend investors to accumulate equities from a 3 to 5 years

investment horizon.

We advise Diversified Equity, Large Cap and Mid Cap funds

16UNION BUDGET, 2015 - 2016

DEBTMARKETOUTLOOKAND STRATERGY

The government relaxed the fiscal deficit target for FY 16 and FY 17 to 3.9% and3.5% respectively in return for additional infrastructure spending. The medium termfiscal deficit target of 3% has been pushed to FY 18.

Government is likely to borrow Rs.6 lakh crores in FY16 compared to Rs.5.92 lakhcrores for this fiscal. The budgeted target for borrowing in current fiscal was Rs.6lakh crores, but the government will raise only Rs.5.92 lakh crores from markets.

However, the net borrowings in 2015-16 will be Rs.4.56 lakh crores, afterconsidering repayments of past loans and interests. It was Rs.4.53 lakh crores incurrent fiscal.

The demand-supply mismatch for G-Secs is expected to be comfortable this year.

RBI in its last monetary policy review had hinted that future course of interest rateswould be dependent on inflation and fiscal consolidation intent of the government.

With inflation within RBIs target (CPI at 6% for Jan 16) and with the governmentoutlining the fiscal roadmap, the onus now shifts to RBI on the monetary policy front.

Yields are likely to be range bound in the near term. However, we are positive from amedium to long term perspective with a pro-active inflation targeting RBI and acredible govt. at the Centre.

Long Term Income & Gilt and Dynamic Bond Funds can be recommended withan investment horizon of 18 to 24 months.

Short term income funds can be recommended for investors with an

investment horizon of 12 to 18 months to benefit from current accruals andensuing capital appreciation if yields head lower during this period.

The Budget also announced allocation for tax free infrastructure bonds. This willresult in fresh primary supply of these bonds. Details about the names of stateorganisations and coupon on these tax free bonds are still awaited.UNION BUDGET, 2015 - 2016

17

DISCLAIMERDISCLAIMERThe report and information contained herein (hereinafter referred as Report) is of confidential and meant only for the selected recipient.This Report should not be altered, transmitted to, copied, reproduced or distributed, in any manner and form, to any other person ormedia or reproduced in any form, without prior consent of Axis Bank. The material in this report is based on information obtained frompublicly available recourses and/or sources believed to be reliable, true and accurate by Axis Bank, as on dare of the Report. Axis Bankdoes not guarantee that the information is true, reliable and accurate, not misleading nor does it represent (expressly and impliedly) asto its genuineness or suitability for intended the purpose of use. The opinion expressed (including estimates and forecasts) in Report issubject to change, alteration, updation at Axis Banks sole discretion but without any communication and without prior notice ofintimation.This Report is not an offer or solicitation for dealing in any financial instrument(s) or is an official confirmation of any transaction. ThisReport is provided for assistance only and should not be construed as the sole document to be relied upon for taking any kind ofinvestment decision. Each recipient of this Report should make his/her own research, analysis and investigation as he/she deems fit andreliable to come at an independent evaluation of an investment in the securities mentioned in this Report (including the merits, demeritsand risks involved), and should further take opinion of own consultants, advisors to determine the advantages and risks of suchinvestment. The investment discussed or views expressed herein may not suit the requirements for all investors.Axis Bank and its group companies, affiliates, directors, and employees may: (a) from time to time, have long or shortpositions in, and deal (buy and/or sell the securities) thereof, of company (ies) mentioned herein or (b) be engaged in anyother transaction involving such securities and earn commission/brokerage or other compensation or act as advisor orlender/borrower to such company (ies) or have other potential conflict of interest with respect to any recommendation andrelated information and opinions.The applicable statutory laws, rules and regulations may not allow the distribution of this Report in certain jurisdictions, and persons whoare in possession of this document, should inform themselves about and follow, any such restrictions. This Report is not meant, directedor intended for distribution to, or use by, any person or entity in any jurisdiction, where such distribution, publication, availability or usewould not be in confirmation to the applicable law, regulation or which would require Axis Bank and affiliates/associates/subsidiariescompanies to obtain any registration or license . Neither Axis Bank nor any of its affiliates, associates, subsidiaries companies, itsdirectors, employees, agents or representatives shall be held responsible, liable for any kind of consequential damages whether direct,indirect, special or consequential including but not limited to lost revenue, lost profits, notional losses that may arise from or inconnection with the use of the information or for ant misstatement or error(s) in it.Prospective investors and others are cautioned and should be alert that any forward-looking statements are not predictionsand may be subject to change without providing any notice.Past performance should not be considered as a reference to future performance. The disclosures of interest statements if any includedin this Report are provided only to enhance the transparency and should not be construed as confirmation of the views expressed in thereport.Disclaimer for DIFC Branch:Axis Bank, DIFC branch is duly licensed and regulated in the Dubai International Financial Centre by the Dubai Financial ServicesAuthority (DFSA). This Report is intended for use only by Professional Clients (as defined by Rule 2.3.2 set out in the Conduct ofBusiness Module of the DFSA Rulebook) who satisfy the regulatory criteria set out in the DFSAs rules, and should not be relied upon,acted upon or distributed to any other person(s) other than the intended recipient.